Can carbon make returns sparkle?

Commentary: Carbon makes diamonds -- and many other products as well

BenWeiss

“Next to sound judgment, diamonds and pearls are the rarest things in the world.” — French philosopher Jean de La Bruyère

TEL AVIV (MarketWatch) — Carbon makes up diamonds, which are some of the most valuable things on Earth. So is carbon fiber also the way to give your investment portfolio some sparkling returns?

The carbon-fiber market is set to grow at a 13%-a-year clip, more than doubling in value from the current $14.6 billion to $36 billion by 2020. Lux Research says. And with only a relative handful of public companies manufacturing the raw material, including several under the M&A microscope, Eye on Asia sees some opportunities.

SGL Group

Carbon-fiber production at SGL Group.

Just as diamonds have a high strength-to-volume ratio — they are 58 times harder than the next hardest mineral — carbon gives product manufacturers advantages in strength, weight, cost and ability to conduct heat.

At ground level, your pencil tips, printing ink and bicycle tires are black because carbon byproducts give them that black finish. But carbon fiber is finding broader use in a range of industries, like aerospace, automotive, marine, wind power, consumer electronics and more. And with demand for efficiencies only sharpening, everything from jets to cars to laptop computers incorporates the stuff.

The airframe of Boeing Co.’s
BA, +1.59%
787 Dreamliner is made from nearly 50% carbon fiber and weighs 20% less than its aluminium predecessors. Same with the Airbus
EADSY, -0.61%FR:EAD
A380: It’s made from 25% carbon fiber.

Or look at cars. General Motors Co.
GM, -0.11%
said that its new Corvette Stingray will use carbon fiber and weigh 100 pounds (45.4 kg) less, while Volkswagen AG
VOW, -2.53%
is rumored to be developing a Carbon Golf GTi that will be 440 pounds lighter.

Figure 1: Recent M&A

Date

Target

Acquirer

Share Premium

Deal Value

Multiples

April 2012

Umeco

Cytec

46%

$437 mln

P/E 21.9x, Price/Sales 2.1x

November 2012

Titanium Metals

Precision Castparts

44%

$2.9 bln

P/E 22.5, Price/Sales 1.4x

Source: Analyst reports

In consumer electronics, the same story obtains: Apple Inc.
AAPL, -0.22%
has been ordering carbon-fiber samples and researching new material structures for iPad and Macbook PC casings. Lenovo Group Ltd.
LNVGY, -1.06%0992, -1.82%
launched its ThinkPad X1 Carbon, which has a bigger screen and yet is 20% lighter.

And last October, International Business Machines Corp.
IBM, +0.29%
said its researchers were developing novel processing methods to explore the use of carbon technology to replace silicon in computing.

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